Demonetisation uncertainty may cause cement firms to report fall in volume: Kotak

By: | Published: January 10, 2017 6:17 AM

In a quarter plagued by uncertainty owing to currency demonetisation, we expect mixed results from the cement sector— pan-India players likely to report volume decline and flat realizations, players in North will report weakness in volumes with sequential drop in realizations, and South-based...

"It appears that the decision (of scrapping high denomination currency) has been taken by a person who is completely unaware of ground realities," alleged Sharma. (Reuters)The sequential decline notwithstanding, cement prices in north, central and west for Q3FY17E will appear substantially better off compared to the same period last year. (Reuters)

In a quarter plagued by uncertainty owing to currency demonetisation, we expect mixed results from the cement sector— pan-India players likely to report volume decline and flat realizations, players in North will report weakness in volumes with sequential drop in realizations, and South-based players will report healthy volume growth coupled with sequential improvement in realizations. Rich valuations and continued earnings risk prevent us from taking a constructive stance on pan-India players.

For Q3FY17, cement prices have averaged Rs 326/bag—flat sequentially though up ·16/bag y-o-y. Sequential improvement will be seen in west and south as prices in central and north trend lower. The sequential decline notwithstanding, cement prices in north, central and west for Q3FY17E will appear substantially better off compared to the same period last year. Among our coverage, Orient Cement stands out for a strong 14%q-o-q improvement in cement realization owing to its large concentration in Maharashtra and Andhra Pradesh.

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Our coverage universe will report a 3% y-o-y decline in cement volumes, compared to 3.7% y-o-y growth for October-November 2016 (based on DIPP), reflecting the impact of weakness in December 2016. Pan-India players will likely report decline in volumes (5-9%) while players in South appear to have been less impacted owing to institutional demand likely in the AP/Telangana region that will likely allow players such as India Cement and Dalmia to continue to report healthy volume growth.

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